ARBA...one of the 4 Horsemen??
'It Isn't Over Until We Say It Is,' Rallying Tech at H&Q
By Aaron L. Task
Senior Writer
5/9/00 11:15 PM ET
SAN FRANCISCO -- "Nobody said it's over."
Or so observed one relieved fund manager, after witnessing the "Views From the Buy-side" panel at the Chase H&Q conference here Tuesday.
The panelists, featuring some of the Street's most celebrated tech investors, acknowledged feeling the pain since mid-March. The downward trend continued Tuesday as the Nasdaq Composite Index fell 84.37, or 2.3%, to 3585.01. But there was no sense that it was time to panic, even if Roger McNamee, general partner at venture capital giant Integral Capital Partners quipped: "I'm prepared to change my mind."
The panelists spent much of their time looking back rather than offering visions of the future. But, in the end, they did provide some advice for those focused on the here and now vs. there and then.
The reflections on what has transpired gave a nod to the old saying about laughter being the best medicine. Humor was a common theme, even if it was of the variety usually reserved for Roman slave ships.
In other words, "bitter irony," as described by Steven Appledorn, senior portfolio manager at Munder Capital Management, a mutual fund family. Given the Munder NetNet fund he manages saw its net asset value fall as much as 50% from its peak in early March (it has since recovered about 20%), it's safe to say Appledorn is familiar with the sentiment.
But Munder Capital has had only three days of net outflows this year, he noted, suggesting retail investors have conviction that changes fostered by the Internet are significant and material. That is quite encouraging, Appledorn added, after dubbing the Nasdaq's retreat a normal pullback.
While admitting there are "more Internet companies than the world needs," he said Munder continues to put fresh money to work in leading firms with strong management and what he called a clear "P2P" or "pathway to profitability." Appledorn did not mention specific names, but some of the NetNet fund's top holdings include InfoSpace (INSP:Nasdaq - news - boards), Cisco (CSCO:Nasdaq - news - boards) and Applied Micro Circuits (AMCC:Nasdaq - news - boards).
A similar message came from Jay Hoag, general partner at Technology Crossover Ventures, which recently closed a $1.6 billion venture fund for investing in Internet-based companies.
The extraordinary progress made by technology and the Internet -- and accompanying stocks -- in recent years led to a gamesmanship aspect to investing, Hoag said. The spiraling up of activity simply got out of hand and the Nasdaq's 30% decline since mid-March is a welcome wake-up call that should lead to a more rational environment.
Regarding the heady days of tech investing, "nothing is over until we say it is," the VC claimed, citing the great philosopher Blutarsky (as portrayed by John Belushi in Animal House).
That comment drew big laughs from the packed house in the grand ballroom of the Westin St. Francis. In contrast, Joseph McNay, chairman and chief investment officer at Essex Investment Management, a family of hedge funds with more than $16 billion under management, generated some quizzical looks by framing his presentation as a hypothetical conversation with the pope.
The pontiff's message for the masses, according to McNay: "Relax, it's going to be OK. I've never seen business better. [The Internet] is a dynamic revolution. Take it easy. Time is as important as price change. Be patient, then buy 'em."
McNamee batted cleanup on the panel, which was appropriate given his Ruthian status among Silicon Valley investors.
What some might find troubling, due to McNamee's impressive track record of tech investing, is that he was the most cautious of the four speakers.
Beginning with a look back, McNamee lamented that investors will never again enjoy seeing the tech weighting of the S&P 500 move from 5% to 30%, as happened in the 1990s. Similarly, he fretted that 1999 will prove to be the best year [Integral Partners] ever had and encouraged all tech investors to admit "some element of mania" contributed to their stellar returns vs. their "world class investing acumen."
The VC heavyweight conceded some risk has been taken out of the market but worried about the pain still to come for "$2 stocks that were masquerading as $200 stocks, which are now trading at $50."
He also expressed concern about the huge backlog of secondary offerings still to come and the outrageous burn rates of some young Internet companies.
Finally, the significant revenue boost from pre-IPO investments by core tech holdings such as Intel (INTC:Nasdaq - news - boards) and Cisco (CSCO:Nasdaq - news - boards) is a concern that is not getting enough attention, McNamee said.
Doesn't he read TheStreet.com?
Riding The Four Horsemen
The panelists were asked whom they see as future pillars of the tech-stock pantheon. That is, who will be the new Four Horsemen, replacing Microsoft (MSFT:Nasdaq - news - boards), Cisco, Dell (DELL:Nasdaq - news - boards) and Intel?
Hoag named Ariba (ARBA:Nasdaq - news - boards) as his top choice. TCV was an early stage investor.
Appledorn mentioned Ariba, Oracle (ORCL:Nasdaq - news - boards), InfoSpace, and Critical Path (CPTH:Nasdaq - news - boards). Munder Capital is long all four.
McNay showered favor on Phone.com (PHCM:Nasdaq - news - boards), Broadcom (BRCM:Nasdaq - news - boards), and Brocade (BRCD:Nasdaq - news - boards), of which Essex Investments is long each.
Finally, McNamee said contract manufacturers Flextronics (FLEX:Nasdaq - news - boards) and Solectron (SLR:NYSE - news - boards) are potential beneficiaries of his belief that the growth potential for the "physical side" of the Internet is underappreciated. Integral Partners is an investor in Flextronics.
But showing he's an equal-opportunity investor, McNamee also heaped praise on Viant (VIAN:Nasdaq - news - boards), which received VC backing from Hoag's TCV.
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